Does need-based aid still exist? For example, in undergrad, my college calculated the cost of attendance, subtracted my Expected Family Contribution, and then met the difference with a combination of grants and loans. My friend is basically saying that the grants during this step disappears, and that the law school meets your "need" completely with loans.

I think that this is typically true, although I'm not 100% clear on it. It seems that most grants from law schools are merit-based and some may be based on combined merit/need. But I don't think we can expect much, if any, grant money based on need like we got in undergrad.